ANN ARBOR—The U.S. economy gained more jobs in 2006 than in any year since 2000, despite a rough second half. But the pace of economic growth will pick up again after mid-year–albeit moderately, say University of Michigan economists.

“It’s no secret that the economy didn’t proceed at a smooth growth rate throughout all of last year,” said Saul Hymans, U-M professor emeritus of economics. “Two important segments of the economy—the vehicle market and homebuilding—weakened. While we do not expect conditions in these markets to worsen a great deal more, they’re likely to keep economic growth softer for awhile yet.”

In their annual spring forecast update of the U.S. economy, Hymans and colleagues Joan Crary and Janet Wolfe predict job gains of about 1.7 million in both 2007 and 2008, down from 2.5 million last year.

In 2006, national economic output growth (as measured by real Gross Domestic Product) was 3.3 percent overall, but only 2.1 percent in the second half. The U-M economists expect growth of 2.4 percent in 2007 and 2.9 percent in 2008.

“The growth pattern is supported by residential construction bottoming out in mid-’07 and light vehicles sales stabilizing this year and most of next, before beginning to recover by late 2008,” Hymans said. “With mortgage rates in the 6.25-6.5 percent range, the stock of unsold homes will shrink and the housing market will begin to turn around. New construction leads the way with starts beginning to recover this spring. Existing home prices will stabilize this summer with existing home sales turning up by spring 2008.”

Overall, housing starts will number about 1.5 million this year, down from nearly 2.1 million in 2005 and 1.8 million last year, before edging back up to nearly 1.7 million in 2008, Hymans and colleagues say. Sales of existing homes will continue to drop from a record-setting 6.18 million in 2005 to 5.7 million in 2006 to 5.1 million this year, before beginning to level off at just over 5 million next year.

Sales of cars and light trucks will remain steady at 16.5 million units this year—the same as in 2006—and at 16.6 million in 2008, they say.

According to the forecast, the stabilizing economy will see unemployment rates hold steady around 4.5 percent through 2008 and inflation will remain just over 2 percent during that time. The price of oil will stay about $57 per barrel through next year—double the average price earlier this decade.

The U-M forecast is based on the Michigan Quarterly Econometric Model of the U.S. Economy and compiled by the U-M Research Seminar in Quantitative Economics.